Intrinsically linked: key trends shaping the logistics and retail sectors
February 2, 2021.
As we said goodbye to one of the most challenging years for all of us, both professional and personally, and entered into a new year, it is no surprise to anyone to see how fortunes have changed in retail and the resulting effect on the logistics industry. Looking just at the grocery sector, Asda reported a 7.8% growth, compared to -2.2% in the 12 weeks running up to 29 Dec 19, Tesco’s sales grew 11.3% in the four weeks up to 27 December, Lidl 17.9% and Iceland 18.9%.
The obvious factor in all of this was the exponential growth of online shopping resulting from the pandemic, a trend we know is only going to accelerate into 2021. However, what are the knock-on effects of this continued trend and how will it affect logistics and industrial as we move into another new year?
Automation has been on the agenda for a long time now with the likes of Amazon using automated warehouse and robotic picking of products as the mainstay of their business model. However, this year is the year that we are going to see the automation of the warehouse become more mainstream, especially within the grocery sector that has seen profits eroded by having to employ millions of staff to pick for online orders. Waitrose and Ocado, have already made great strides when it comes to warehouse automation, but this will be the year we will see investment from the other big supermarkets to ensure they can deliver on the demand for online customers.
- Repurposing and mixed use of space
This move towards an acceptance of online will mean that much of the investment will be at logistics level rather than in store estates. Those with larger portfolios are swapping acquisition strategies for repurposing and refit. Accommodating online warehouse space into stores will be key as well as a continuation of diversification of their in store space as seen with retailers such as Next accommodating Paperchase, Costa and in some units, Virgin Holidays and John Lewis that recently applied to repurpose its top floor in Oxford Street to office space to reflect that 60% of all sales are now online.
- Click and collect
For others, the physical space will be left for showcasing new or innovative products – seen already by technological retailers such as Apple and Samsung – or as click and collect spaces to counter the cost of returns from online. Independent stores are also profiting from the increase in click and collect with many franchise based convenience stores such as Premier and Spar becoming collection points for distributors.
- Big retailers having their own fleet – transportation centres
2021 will be the year we predict retailers that are shifting their service to online will move away from subcontracting delivery. Presently supporting a sub sector of distribution providers such as Yodel, Hermes, DHL and the like, many larger retailers will look towards their own fleet of vehicles like the grocers’ model. This in turn will have a knock on effect for logistics as new units to house, maintain, clean and fuel distribution fleets will also be part of retail estates. The eco-friendly last mile still remains a big challenge for the sector although progress is being made, for example with Co-op recently expanding their autonomous home delivery robots into Northampton adding to their Milton Keynes operation which started in 2018 and Amazon announcing plans for a 100,000 electric vehicle fleet being manufactured in the US as part of their climate pledge for net zero carbon by 2040.
- Out of town retail converted to distribution
The drive to repurpose out of town retail and other industrial estates will continue apace. We have already seen at the end of 2020, investment firm M&G selling Ravenside Retail Park in Edmonton, north London, to warehouse company Prologis for £51.4m to be repurposed as a last mile distribution centre. As the demand for online continues, more out of town retail will be converted to warehouse and last mile space, a trend we see moving into town centres to bring regeneration to sites with good access that are, closed or presently vacant/ unleased.
- Land allocation from local authority
In turn this will drive local authorities and many other estate owners to look at land as an asset to be used for logistics sites, especially those close to motorways or other transport networks. With many local authorities and some energy companies looking to dispose or in some cases develop their brownfield sites, the continued rise in online retail and the resulting demand for logistics and last mile distribution units should produce strong land prices and rent levels for sites that are in good locations and provide access to labour pools.
2020 and the onslaught of COVID-19 has made us all rethink the way we work and live and shop. Even with the vaccine roll out starting, it is unlikely that these changes in behaviour will change overnight as we slowly adapt back to a level of normality post the pandemic. For retailers this has been the catalyst which has made them accelerate their digitalisation strategies and significantly invest in their online operations, driving an ever buoyant industrial and logistics market into 2021 and beyond.
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